Overview of Profitability Analysis

PA module is the most important module when it comes to analyzing the results of the organization. In this module you basically collect the revenues from the sale order , the costs from the production order, cost center or internal order and analyze their results. The interesting part about this module is that when it collects the costs and revenues it also collects the characteristics associated with the costs and revenues and this is what makes it stand out So for e.g. using PA module you can find out the following:

Profit of a certain product

Profit of a certain product in a certain region

Profit of a certain product in a certain region by a certain customer

Profit of a certain product in a certain region by a certain sales person

And the list can go on in depth

Revenues and Costs flow in Profitability Analysis

The Sales Revenue comes from the Condition Type in SD. We need to map the Condition Type in SD to the respective value fields in customizing to have the revenue flow. The Cost comes from Cost estimates which are transferred using the transfer structure which we have covered in the Product costing section. The various cost components of the cost component structure is assigned to the value field and this is how the costs come into PA. Once the actual revenue and the std cost defined above are captured, the variances are also transferred. This way the std cost variances equal the actual cost. So actual revenue- actual cost helps us determine the profit.

Account Based Profitability Analysis and Costing Based Profitability Analysis

Account based Profitability analysis is a form of Profitability analysis (PA) that uses accounts as its base and has an account based approach. It uses costs and revenue elements.

Costing based Profitability Analysis is a form of profitability analysis that groups costs and revenues according to value fields and costing based valuation approaches. The cost and revenues are shown in value fields.

Advantages and Disadvantages

The advantage of Account based PA is that it is permanently reconciled with Financial accounting.
The disadvantages are that it is not powerful as the costing based PA, since it uses accounts to get values. No Contribution margin planning can be done since it cannot access the standard cost estimate. Further no variance analysis is readily available.
The advantages of the Costing based PA are manifold. They are as follows:

Greater Reporting capabilities since lot of characteristics are available for analysis.

This form of PA accesses the Standard cost estimate of the manufactured product and gives a split according to the cost component split (from the product costing module) when the bills are posted.

Contribution margin can be planned in this module since the system automatically accesses the standard cost estimate of the product based on the valuation approaches.

Variance analysis is ready available here since the variance categories can be individually mapped to the value fields.

Disadvantages: Since it uses a costing based approach, it does not sometime reconcile with financial accounting.

Characteristic Derivation in Profitability Analysis Module

Characteristic Derivation is usually used when you want to derive the characteristics . An example of this could be say you want to derive the first two characteristics of product hierarchy. In such cases you define characteristic derivation where you maintain the rules, which contain the table names of the product hierarchy field s and the number of characters to be extracted, and it also specifies the target characteristic field in PA.

Revenues and Costs flow in Profitability Analysis

The Sales Revenue comes from the Condition Type in SD. We need to map the Condition Type in SD to the respective value fields in customizing to have the revenue flow into PA.
The Cost comes from Cost estimates which are transferred using the PA transfer structure which we have covered in the Product costing section. The various cost components of the cost component structure is assigned to the value field of PA module and this is how the costs come into PA. Once the actual revenue and the std cost defined above are captured in PA the variances are also transferred into PA. This way the std cost variances equal the actual cost. So actual revenue- actual cost helps us determine the profit.

Profitability analysis lets you analyze the profitability of segments of your market according to products, customers, regions, division. It provides your sales, marketing, planning and management organizations with decision support from a market oriented view point.

Profit center accounting lets you analyze profit and loss for profit centers. It makes it possible to evaluate different areas or units within your company. Profit center can be structured according to region, plants, functions or products (product ranges).

Reports on Profitiblity analysis

Profitability Analysis reports (COPA module) has to deal with huge amount of characteristics such as products, product hierarchy, customers, country, profit center and many more characteristics. This can cause performance issues while executing the COPA reports (KE30) over a period of time. The reports can take a longer time for execution and sometimes even give an abap run time error.